Canada: Cooperative Capital Markets Regulatory System Delayed By One Year

On April 16, 2015, the council of ministers (Council) for the
proposed cooperative capital markets regulatory system (Cooperative
System) announced that the Cooperative System is now expected to be
operational by the fall of 2016, one year later than originally
anticipated. The Council also announced that Yukon has agreed to
join the Cooperative System and entered into an amended memorandum
of agreement (Amended Agreement) with the Canadian government and
the British Columbia, Ontario, Saskatchewan, New Brunswick and
Prince Edward Island governments relating to the Cooperative
System's principal components. The Council also announced the
members of the nominating committee for the board of directors
(Board) of the regulatory authority (Authority) under the
Cooperative System.

For more information on the Cooperative System, please see the
various Bulletins posted on our
website.

DELAYED TIMELINE

The original version of the memorandum of agreement entered into
in August 2014 (Original Agreement) provided that participating
jurisdictions would use their best efforts to publish draft initial
regulations that would replace all existing national securities
rules in the participating provinces and territories on or before
December 19, 2014 and enact the uniform provincial and territorial
capital markets legislation, Capital Markets Act (CMA),
and new federal capital markets legislation, Capital Markets
Stability Act (CMSA), (Consultation Drafts) on or before June
30, 2015. Based on that timeline, the participating jurisdictions
expected the Cooperative System to be operational in the fall of
2015.

The Consultation Drafts were released in September 2014 and were
open for comment until November 7, 2014 (subsequently extended to
December 8, 2014). Extensive comments on the Consultation Drafts
were received, suggesting that more robust consultation would be
required for the CMA and CMSA, particularly given the significant
changes to securities and capital markets laws that the
Consultation Drafts contemplated and the difficulty of commenting
on the Consultation Drafts without having the opportunity to review
the initial regulations. For a summary of the issues raised in the
comment letters, please see the following Bulletins:

The Amended Agreement provides that the participating
jurisdictions will use their best efforts to publish the revised
drafts of the CMA and CMSA (Revised Consultation Drafts) together
with draft initial regulations by the summer of 2015 and enact the
CMA and CMSA on or before June 30, 2016. Based on the revised
timeline, the participating jurisdictions expect the Cooperative
System to be operational in the fall of 2016.

The Original Agreement also contemplated that the participating
jurisdictions would agree on legislation and other constating
charter documents (CMRA Charter Documentation) that would set out
the Authority's structure, responsibilities and powers. The
CMRA Charter Documentation has not been released for comment and
the Amended Agreement does not provide a timeline for its
release.

MORE LOCAL OFFICES

The Amended Agreement provides for the maintenance of an office
of the Authority in each participating territory to address capital
markets activity and regulatory and enforcement demands of Yukon
and other territorial jurisdictions that may join the Cooperative
System. The Original Agreement only provided for regulatory offices
in each provincial participating jurisdiction.

NOMINATING COMMITTEE APPOINTED TO RECOMMEND BOARD OF
DIRECTORS

The Board will supervise the Authority and be composed of a
minimum of nine and a maximum of 12 directors. The Board will be
responsible for, among other things, supervising the management of
the business and affairs of the Authority, appointing the chief
regulator and exercising the Authority's power to make
regulations. The Board's members will be appointed by the
Council, based on recommendations from a nominating committee.

Pursuant to the Amended Agreement, the nominating committee for
the initial Board is composed of one member selected by each of the
responsible ministers from a major capital market jurisdiction
(Ontario and British Columbia and if applicable, Alberta and
Quebec), Canada's Minister of Finance, Saskatchewan's
minister and New Brunswick's minister.

The Council appointed the following individuals as nominating
committee members:

Neil de Gelder (British
Columbia)

Susan Wolburgh Jenah (Ontario)

Grant Kook (Saskatchewan)

David Barry (New Brunswick)

The Honourable Michael Wilson
(Canada)

After the initial Board is established in the coming months, the
nominating committee will be composed of:

One member selected by each
responsible minister of a major capital markets jurisdiction and
Canada's Minister of Finance, and an equal number of members
selected by the Board from among its members

One member selected by the provincial
and territorial participating jurisdictions that are not major
capital markets jurisdictions or if there are more than five
provincial and territorial participating jurisdictions that are not
major capital markets jurisdictions, two members

Under the Amended Agreement, the nominating committee's
members must be independent of the governments represented by the
Council and possess appropriate qualifications and capital
markets-related experience. The term "independent" is not
defined in the Amended Agreement or the Consultation Drafts.

INTERFACE WITH NON-PARTICIPATING JURISDICTIONS

With the agreement of Yukon to join the Cooperative System, a
majority of jurisdictions (provincial, territorial and federal)
have now agreed to participate in the Cooperative System. However,
given the fact that six provinces and territories, including
Alberta, Manitoba and Quebec, have not agreed to join the
Cooperative System, commenters on the Consultation Drafts had
expressed concern about the manner in which the Authority will
interface with non-participating jurisdictions. Commenters noted
that unless there was reciprocal recognition among participating
and non-participating jurisdictions, such as through a
"passport" system, the system would be less harmonized
and more fractured than is currently the case. Perhaps in response
to this concern, Canada's 2015 federal budget released on April
21, 2015, stated: "If jurisdictions choose to operate outside
the Cooperative System, they will have a constructive partner in
the new Authority, with the ultimate goal of providing efficient
access to capital markets." It is unclear whether
Alberta's recent change in government will change the
province's position on the Cooperative System.

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